How To Start A Direct Sales Company

If you have your own business or product and you are trying to figure out how to start a direct sales company with your own concept and products, then this page is for YOU!

If you are an individual who wants to join an existing direct sales company as an affiliate and are doing some research to find the best company for you, then you should be reading another page on the Cash Flow Show called:How To Start A Home Party Business.

How To Start A Direct Sales Company

We have worked with a wide variety of start-up companies over the years at various stages of the process and one thing we have learned is that very few who are embarking on this path fully understand the overall process.

Hopefully, this page will give you a better understanding of what exactly is involved with starting a direct sales company.

If you are serious about learning how to start a direct sales company, then there are many things to take into consideration.

Key Points In Starting A Direct Sales Company

There is a lot of information on this page so, click these links and jump down to a specific topic or read the full page to get the big picture:

Product Pricing Rule Of Thumb

Generally speaking, a good rule of thumb is that you should be able to have a product markup of about 5 X to cover all the levels of compensation and host benefits in a direct sales or home party plan business venture.

That is not to say that you can’t do it without that markup, but there are a lot of layers, costs and necessary parts to direct sales and generally that is considered a good rule of thumb.

What Business Model Do You Want To Follow?

Often wanna-be companies do not understand the compensation options and yet want to move forward with developing a compensation plan.

There are many layers to a direct sales compensation plan including things like representative’s commission, incentives for team and customers, the host benefit package and more. The first step in moving forward in creating your direct selling company is being clear on understanding your business model.

The compensation plan is a key component to the success of the company and great care needs to be taken in creating it. The terminologies associated with direct sales companies are often misunderstood.

The type of direct sales company you want to set up also basically determines your compensation plan structure.

For example:

Direct Sales: While the term direct sales is often used when referring to the party plan business model, it really covers all selling directly to the consumer.

MLM: While almost all direct sales companies are based on a multi-level marketing commission structure, MLM, in the classic sense, is usually referring to a company that pays deep down into more levels. The consultant is paid based on his/her sales as well as those that are recruited under them. This usually means compensation is paid ‘deeper’ meaning commissions are paid on recruits of recruits several levels down.The focus in the classic MLM is usually more on recruiting than product. While all consultants sell product, their personal commissions increase tremendously with more recruiting.

Person To Person: The classic door-to-door is actually still widely used in direct selling worldwide, although less popular in the US now. This is the direct selling model that usually does not utilize the multi-level pay structure.

Party Plan: This model is the one we will focus most on here. The distributors are invited to the homes of their ‘host’ or ‘hostess’ and both the consultant and the host receive some sort of compensation. In party plan companies you (the CEO or founder) must make financial allowances for the cost of the benefits to both the host, the consultant and also a couple of ‘override’ levels down for recruiting.

Your compensation plan should not be taken lightly. Keep the rule of thumb in mind and learn more about different methods of direct selling compensation.

It is strongly recommended that you hire a professional business accountant who is experienced in MLM, direct sales and party plan.

In addition it is important that you create your compensation plan with the assistance of a compensation plan expert who understands the ramifications of the various payout levels.

Software – Websites

This is one of the most important issues and can be a costly part of setting up a direct sales company.
Anyone can set up a nice, affordable website but to create one that serves the needs of a growing multilevel company is not cheap. In the 21st century all viable business models have a website. In party plan this means that each distributor also has a website which is an exact replica of the corporate site.

The corporate and ‘replicated’ website needs to cover (and provide solutions for) several important parts of your direct selling business.

Providing merchant account services

Providing an online catalog, shopping cart and order processing

Maintaining a unique portal for each distributor, tracking sales and assigning it to each distributor

Calculating/paying commissions

Maintaining and tracking recruits and ‘downlines’ also known as team ‘genealogy’

Party management & submission including calculating host benefits

Shipment tracking, returns and warranties

Data management system for each distributor and corporate communications

“Back Office” location for training, policies, forms, and other collateral materials including ordering of consultant supplies

Corporate-wide communication system

As you can see the replicated or affiliate site can solve the majority of the organizational issues that most new companies have. A good software solution will seamlessly connect the above 10 functions for your company online and off.

In party plan the sites are a centralized location to keep the parties, team, host benefits and consultant history organized and make the actual day-to-day activities of a distributor simple.

Usually they have a software program on their computer that they can take to shows and actually enter data as they take orders, then when they get home it just syncs with their distributor site.

The investment for this can be costly but does not have to be. A fully integrated state of the art system integrated into a corporate website with the ability for long-term growth and success could start at about $25,000.

Look for a software provider that has demos, tools, and actual websites in operation for you to look at. Today those considering joining a direct sales company should also consider the technology that the company offers and whether they have a replicated website for each distributor.

Make sure your software provider offers training, has ongoing support, is capable of expanding as you grow, and is built on solid proven technologies. In direct sales software you often get what you pay for and the best costs more.

Can you start your party plan business without investing in a replicated system?

YES – The problems that may develop are basically tracking.

If you want to start with just a corporate site, then do so. The back office for training and document filing is really not that hard to create as a private team login.

There are real issues you will need to be aware of:

How will your consultants get credit for online orders? Codes entered in the shopping cart?

How will parties be entered and calculated? Very few people will be willing to hand-write, call or fax in orders.

How will you track and keep recruiting organized? Commissions on downline sales will get cumbersome.

Will you appear professional in these tech-savvy times without a site for your team?

At the minimum you may want to start out with the basic system and add to it later.

Easy Party Plan has a robust entry-level system for start-up and emerging companies that gives you the features and functionality that you need now, with the ability to add more as you grow.

Their base system provides a customized website, hosting, shopping cart, true replicated sites with full-featured consultant office suites, social media integration, and online enrollments, as well as a starter compensation plan and/or guidance on your own comp plan.

Easy Party Plan’s unique business model allows a young company to step into an enterprise-level system for as little as $2500.

We recommend a conversation with them BEFORE you start your website or sign on with another web software company.Check out Easy Party Plan Software and tell them Deb sent you!

MLM Law – Getting Started

Every state and country has a plethora of statutes, laws and regulations to deal with. There are so many in fact that it is impossible even to begin the discussion on licensing issues that may exist in your state or country. This is something you will have to address personally based on your business location.

It is strongly recommended that you hire a general counsel MLM attorney in your own state. He/she in turn will consult lawyers in other states and countries on your behalf.

Policy Guidelines To Protect You & Your Team

Before you even start offering your opportunity to others you should set up 3 basic documents to protect you and your new team members.

Your Independent Contractor Policy Guidelines

The consultant Enrollment Application

The Internet Policy

These initial company documents clearly define policy, expectations and roles of all players.

These documents are the first steps to creating your corporate culture because things such as word choices and consultant expectations are defined.

Conflict of interest activities, consultant participation in other business ventures, etc.

Advertising, trademark and trade name restrictions, etc.

Media participation and so much more….

You will save hundreds of hours of your time and attorney fees when you use the Cash Flow Show sales policy template. It is a find and replace editable document that when completed you can give it a quick run past a MLM attorney.

Legal Lingo, Earning & Other Claims

Another reason to involve an experienced MLM attorney is that there are specific rules and word choices along with earning and product results claims that are regulated.

Careful wording is necessary.

Did you ever see the small print: “the average person makes…”or “results not typical” or “these results have not been proven in clinical studies” or “your results may be different”?

Depending on the product you are launching (and this entire page assumes you already have a product of your own), there may be very strict laws regarding your claims. These specific word choices are usually included in your policy guidelines.

International Outsourcing – Shipping – International Laws

As soon as you move into the international market you are creating a series of communications and transactions that definitely need to involve a lawyer!

Outsourcing for product purchases has several areas of concerns but the top three are:

Quality Control: You must have someone dedicated to overseeing quality control. Whether it is an offshore overseer or someone at your import facility, this is an essential position required in product acquisition from the international arena.

Proprietary Products: When sending proprietary ‘recipes’ into other countries, there is always a risk of theft. This is more true in some countries than in others.

So you can see anytime you move into international sales and/or acquisition you NEED an MLM attorney expert on your team.

This Is All Great…
But What Is The Minimum I Need To Do To Start My Own Direct Sales Company?

While there are literally thousands of things that you must do to set up and start a direct sales company that does not mean you need to have everything in place before you get started.

The overall investment in making it all right is not always something the small business owner is ready to or capable of investing in right off the bat.

You may want to launch your party plan company gradually and generate income along the way. This approach has three distinct advantages:

Less money required up front and you can generate capitol for the next step.

You will get started quickly and learn whether your unique idea will work in the marketplace.

Creating a small sales force of founding members will give you a mastermind effect as you move forward and create your corporate culture.

How To Start A Direct Sales Company Fast

If you want to set up a home party company fast and just start bringing in distributors to do shows, there are a few things that we recommend as the bare-bones minimum in launching your direct sales company.

Create all the necessary collateral materials so that you look legitimate and are well branded!

No one is going to join your direct sales company if you look like you might not last.

So at a minimum create these professionally branded materials:

Write your online and offline policy guides and enrollment agreement

Write a basic compensation plan one level deep with a bonus for recruiting

Create A Founders Program

After you have all the basic collateral materials listed above in place it is time to find 10-12 founding consultants.

These consultants would be home office direct. All other consultants signed after those initial consultants would be placed under one of the founders.

Your home office direct team consists of highly dedicated consultants who get some special perks for being the first in return for being your mastermind team in working out the bugs.

If you are already an existing company that is moving into party plan then you may want to tap into your existing customers to find your founder’s team. If you are an individual who has a craft or product of your own creation, then you surely have friends who already love the product and may want to join you in this venture.

Your home office direct team may start without any investments.

They should be told that you are working on a more thorough compensation plan as well as training and support and want their help to figure out the bugs, costs, and provide feedback as to what the hostesses say, like or needs improved.

Larger corporations may invest in the total package by hiring a consulting firm dedicated to party plan set up and do it all before launch, and smaller companies may want to just test the waters.

Ground Floor Opportunities

A ground floor opportunity is great only if the floor does not fall out from under the distributor.

There are many classic success stories that include the ‘start in the basement’ as Thirty-One Gifts founder, Cindy Monroe did or Doris Christopher of the Pampered Chef and yet, they had to invest to get there.

To launch your own direct sales company from the ground up and do it right so that you become one of those success stories, you should expect to spend close to $1 million.

Other Areas To Consider When Starting A Home Party Company

There are so many more areas to cover when considering starting a home party plan company. A few that come to mind include: